State bankruptcy filings dropped again in 2012

Bankruptcy filings in Wisconsin fell for the second consecutive year in 2012 as the economy continued to slowly mend and employment improved.

Filings were down about 7% last year, to 25,012 from 26,923 in 2011, U.S. Bankruptcy Court records show.

"Most everything we see - both bankruptcies and foreclosures - depend upon the level of employment," said bankruptcy attorney David Leibowitz, founder and managing member of LakeLaw in Milwaukee and Kenosha. "Employment is getting stronger, so bankruptcies are declining. The economy is improving."

Nationally, bankruptcy filings fell 14%, to almost 1.2 million from about 1.4 million in 2011, according to the American Bankruptcy Institute. The institute forecast that with low interest rates, reduced consumer spending and households paying off debt, a decline in bankruptcy filings is likely to continue in 2013.

But Milwaukee-area bankruptcy attorneys say that, although filings may decrease again this year, they don't expect to see a big drop. Many consumers still are near insolvency as the economic recovery progresses at an unhurried pace, they said. The home-building market in particular, while improving, isn't employing nearly the number of workers in the trades that it once did.

Robert Waud, of Todd C. Esser & Associates law firm in Milwaukee, said plumbers and electricians have been among his clients.

"When they were building houses, there weren't enough electricians and plumbers to go around," Waud said. "I think some of them hang in there because some do some side-type work. But sometimes it gets to the point where they don't have a choice."

Waud said January has been busy at his firm.

James Miller said the economy is getting better and the unemployment rate is down, but his law firm has been busy, too. Miller said he's increasingly seeing people who have a job again after being out of work for months. They are filing for bankruptcy to prevent creditors from trying to garnish their wages now that they are back at work.

"If you're not working, then you don't need to file a bankruptcy to protect the paycheck from getting garnished," said Miller, of Miller& Miller in Milwaukee.

Leibowitz said "chronic underemployment" has become a problem - one that will take work force retraining to help solve.

"People are getting jobs, but they're getting jobs at lower levels than they were before," Leibowitz said. "And they just can't afford to maintain the standard of living that they enjoyed previously. So we're seeing underemployment is catching up to some people."

About 75% of all Wisconsin bankruptcy filings are for Chapter 7 bankruptcy, the kind that wipes out obligations such as credit card debt and medical bills.

Some lawyers say late 2013 could hold a bankruptcy "echo" from 2005, the year national bankruptcy laws were toughened. In October of that year, rules were tightened in an effort to discourage what some said was an abuse of bankruptcy, which is intended to give a debtor a fresh start financially. People who knew they would need to file bankruptcy rushed to court before the mid-October 2005 change in the law occurred, creating a record 38,000 filings in Wisconsin that year.

Those people were prohibited from declaring bankruptcy again for eight years. But in October, those eight years will be up, and lawyers say there is little doubt some of those people will be filing again because they are no better off financially now than they were in 2005 - especially since the economy only got worse after they filed the first time.

"If you look at the people who have to file bankruptcy, they are the people who are living paycheck to paycheck or having to live off credit," Miller said. "So they tend to be in that demographic that is living on the edge financially. So in the last eight years, with the unemployment and all the other things that have happened in the economy as a whole, that is going to impact those people and probably force them to consider filing again."